Tax portion of fiscal cliff deal reportedly has been finalized

Robert Costa reports that, according to senior Republican Senate aides, the tax side of the fiscal-cliff deal has been finalized. The basic framework is as follows:

— Current tax rates would be permanently extended for singles making $400,000 or below, and permanently extended for couples making $450,000 or below;

— For singles, capital gains and dividends of $400,000 or below would be permanently taxed at 15 percent; capital gains and dividends above $400,000 would be permanently taxed at 20 percent;

— For couples, capital gains and dividends of $450,000 or below would be permanently taxed at 15 percent; capital gains and dividends above $450,000 would be taxed at 20 percent;

— The Alternative Minimum Tax would be permanently patched;

— Estates over $5 million would be taxed at 40 percent, and that tax rate would be permanently extended.

The word “permanently” looks nice, but, of course, it actually means “until the Democrats sufficiently increase their power in Congress.”

Still, this isn’t a bad deal on the tax side. However, there doesn’t appear to be anything meaningful on the spending reduction side.

That’s probably okay too as long as the sequestration remains in place. As I have said before, going over half of the fiscal cliff — the spending part — isn’t a bad outcome.

But the Democrats reportedly are trying to get out from under the sequestration, at least for a year, and there’s the rub. Even without the sequestration, Republicans could still negotiate cuts in exchange for raising the debt-ceiling. But this overlooks the draconian consequences of a default on the U.S. debt. Republicans will be as reluctant to be blamed for a default as they are now to be blamed for a middle class tax increase.

The sequestration was designed to be as draconian as raising taxes and defaulting, but it isn’t. Spending cuts are what Republicans want. They should be part of our future and, unfortunately, that includes cuts in defense spending. Ideally, spending cuts would be far better-crafted than the ones in the “cliff” package. But we’re a long way past being in a position to measure things against the ideal.

Republicans should insist that, absent concrete spending cuts that improve the cliff package, the sequestration remain front and center, not something to deal with in a year.